The Federal Architecture of Income Inequality

Abstract

“Income inequality is a national preoccupation, and the public’s imagination is captured by the astronomical incomes of Valley tech billionaires and Greenwich fund managers. But most people do not live in California or Connecticut, and many of the adverse effects of income inequality are local. Our preoccupation with national income inequality comes at the expense of attending to localized inequality and our national focus has potentially pernicious effects as policies that reduce national income inequality can paradoxically increase local income inequality. Using income tax return data, I show how recent proposals for student loan forgiveness and interest payment pauses have this effect.

Understanding the moral significance of income inequalities across different contexts and levels of political organization requires a general account of how incomes are translated into the goods that affect individual status, well-being, and opportunity. This translation of income into power and consumption can be thought of as occurring through an architecture of “allocative fields,” which includes commodity markets and political entities such as states and counties. Toward this end, I propose a new composite measure of income inequality that accounts for the range of contexts where it matters. Viewing income inequality through this lens allows us to see new ways of addressing the adverse effects of income inequality, including accounting for distributional effects of federal policies at subnational levels, adopting a national priority for the poorest, and tinkering with the federal architecture of income inequality itself.”

Keywords: inequality, federalism, tax policy, local government